Two views enter, one view leaves

[The following was written by Senior Shareholder Shenanigan Supervisor Peter Q. Ribic] Who wins big when Icahn, Loeb, Peltz and activist cohorts squeeze firms? Two recent studies from Columbia Business School and Moody's present conflicting answers. According to Columbia professor Wei Jiang, firms confronted by hedge fund activists outperform other stocks by 9% twenty days after they are targeted, on average. In the long term, these firms experience larger dividends, improved equity returns and smaller CEO pay packages. Jiang doesn’t think this trend will continue indefinitely, commenting that:

Although it is too early in the cycle to predict the fate of hedge fund activism with any certainty, if activism can be viewed as another form of arbitrage, then it is likely that the returns associated with it will decline, or even disappear, as more funds chase after fewer attractive targets.